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Central Bank Governor urges banks to find ways to handle bad loans after “Estia” disappointing results

Central Bank of Cyprus Governor Constantinos Herodotou said that interest in “Estia” scheme, the government scheme aiming to reduce the volume of bad loans in Cyprus’ banks, was disappointing and urged banks to find ways to handle those who would might be left out.

“Estia” boosts borrowers’ ability to repay their loans, as the government subsidizes part of the repayment installments of the restructured loan.

Presenting the bank’s budget to the House Finance Committee, Herodotou said that applications for “Estia” in mid-November were around 1050, many of which were insufficiently completed and worth around €206 m.  As he said, the total number of eligible applicants as of March 2019, was over 13,800 with a total value of €2.7 billion.

“Based on the disappointing results so far, banks should consider how to deal with those who may be left out of the scheme,” he said. He added that the CBC was excepting from banks proposals through their three-year plan for managing non-performing loans (NPLs).

Referring to the reasons behind the low number of applications, he said that there were expectations for a new and better scheme, but noted that there was no such planning.  He also said that many people might not want to reveal their real assets, while the truly vulnerable won’t apply thinking that they would be rejected. He also said that bureaucracy could also be a deterrent.

At the same time, he stressed the importance of a stable legal framework governing out- court auctions, along with the existence of an effective insolvency mechanism to achieve the goal of reducing NPLs.

The Governor also referred to his initiative to bring before the parliament a complaint mechanism for borrowers, and said that he was in contact with the European Central Bank (ECB) and are extensively discussing the mechanism. He said that at this point, they had received some initial comments from the ECB and had been asked to send the relevant bill. He added that his goal was to bring the final bill within the next few weeks.

Regarding Cyprus’s efforts to combat money laundering, he said that the way some media reports presented the issue, did not reflect the serious and specific actions taken in the last years to confront the problem.

The results of these actions, he added, have been recognized by both international organizations and banks, restoring confidence in Cyprus’ economy and banking institutions.

“CBC is working tirelessly to further strengthen the regulatory framework, to implement it effectively and to inform key international centers of the progress we are making. We have given the banks a clear message about what we expect, that is to say, the correct implementation of our law and instructions, but without affecting legitimate transactions,” he said.

He also said that next week, the Council of Europe Moneyval Committee will deal, with the 5th assessment of Cyprus on the basis of the standards and methodology of the Transnational Financial Action Task Force.

As he said, there was a big effort to show the evaluators the work being done and any recommendations will be taken seriously.

Referring to the potential risks to the Cypriot economy, he referred to external geopolitical developments as Brexit and trade wars, high domestic public and private debt, the Cyprus Investment Program and the historically low interest rates in relation to the challenges facing the banking sector.

In relation to Brexit he said that CBC estimated that the areas most affected would be tourism, real estate and software services exports with the situation being manageable.

He said, however, that in the long term the outcome could be worse than any scenario since UK could be an economic competitor of the EU.

(Cyprus News Agency)

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